China takes steps to support financial system

The China Securities Regulatory Commission also defended the functioning of the new “circuit breaker” policy that caused Chinese stock markets to suspend trade on Monday after markets fell 7 percent, triggering the mechanism on the very first day it came into effect.

“A falling yuan is the biggest risk for the Chinese stock market in the first half of this year, but the Chinese government is expected to respond swiftly as the country’s central bank has been emphasizing the yuan stability since last year”, Samsung Securities researcher Chun Jong-kyu said. Authorities are trying to prevent volatility in financial markets from eroding confidence in an economy set to grow at its weakest annual pace since 1990.

The Shanghai market slumped 6.86 per cent yesterday after the release of weak manufacturing data heightened worries about the health of the world’s second-largest economy, sparking a wave of selling of global equities.

Most Asian stock markets declined Wednesday after a North Korean nuclear test unnerved investors and a poor Chinese economic report dampened sentiment. The Nasdaq composite fell to 4,895, losing 112 points, or 2.2 percent.

Yang Lihua was one of millions of small investors Beijing encouraged to join a stock-buying frenzy past year.

The retailer saw shares drop 5% after revealing that full-price sales fell 0.5% across its stores in the 60 days to December 24, while sales across its Next Directory online and catalogue arm lifted 2%. Hong Kong’s Hang Seng was down 0.7 percent to 21,188.72 but South Korea’s Kospi outperformed its peers, ending the day 0.6 percent higher at 1,930.5. Australia’s S&P/ASX 200 retreated 1.3 percent to 5,117.90. Financial analysts have warned that would lead to a new round of selling and more volatility.

The ending of the ban on 8 January could unlock what is calculated to be around 1.24trn yuan of shares.

“The market has got some help from state funds and that will support shares in the short term”, Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., told Bloomberg.

It was put in place six months ago at the height of the mainland stock market sell-off over the summer and locked up an estimated 1.24tn yuan ($190bn; £129bn) worth of shares.

When Wall Street opened, there was no relief for the markets.

The offshore rate also moves more freely than its tightly-controlled onshore counterpart, which is only allowed to rise or fall a maximum of 2 per cent against the dollar relative to the official fixing rate.